Testez le Grand Continent. Ideas and analyses you won’t find anywhere else. But you will see them everywhere soon. In your inbox from 8 euros per month
The heads of state and government gathered in June at Évian, within the G7 and the European Council framework, have finally named a problem that Brussels and many capitals had long sought to avoid: China’s industrial power poses a systemic threat to European industry. “Our trade deficit with China stands today at one billion euros per day. It has reached a tipping point. Some say the second Chinese shock is imminent. Yet we already feel it,” Ursula von der Leyen underscored in her annual State of the Union address.
The European Union’s trade deficit with China continues to widen, and Europe remains dependent on Beijing for strategic value chains. This situation threatens European economic security as China increasingly uses trade flows as a geopolitical tool.
In this context, the European Commissioner for Trade and for Economic Security, Maroš Šefčovič, launched last June a new Trade and Investment Consultation Mechanism with his Chinese counterpart Wang Wentao, hoping to resolve through dialogue the structural imbalances shaping today’s trade relationship. Europeans believe the success of this dialogue lies in obtaining concrete measures to limit Chinese exports to Europe in sensitive sectors, rather than merely improving market access for European firms in China. The deadline is early October, and the heads of state and government will meet in Brussels on October 15 and 16. This will be a pivotal moment that will address the remaining political question: will Europe settle for marginal adjustments on the Chinese side, as a majority of member states refuses to engage in an “escalation,” or will member states be ready to mandate the Commission to drastically strengthen our defense of trade, notably by adopting new legislative tools to attempt to impose a rebalancing of our trade relationship with China?
Neither of these strategies will be painless. Opting for the status quo risks the disappearance of entire swaths of our industrial fabric, with little chance of resisting the Chinese offensive. Opting for a robust response commits us to a path in which China will not hesitate to exploit our vulnerabilities and strive to drive a wedge between us. European policymakers, public and private, will need to show unwavering resolve, because the worst would be to create a power struggle and yield at the first obstacle; great solidarity, because a showdown will inevitably yield short-term winners and losers; and a much greater capacity for innovation and investment than today, because if external trade with China is so unbalanced, it is also because Beijing has achieved innovations we did not timely pursue. But China is not without weaknesses toward us, starting with its dependence on exports to the single market, which is a major engine of its economic growth and thus its social stability.
China’s industrial power has weakened the rules-based order at the heart of the European model
A Chinese industrial tsunami
The diagnosis is now unequivocal. In 2025, for the first time, all member states posted a trade deficit with China. Across the Union, the deficit stands at 360 billion euros for goods. And service trade does not offset this deficit, since the Union records a mere 21 billion euros in services surplus. This stands in sharp contrast with the United States, where Donald Trump emphasizes the U.S. goods deficit with Europe, a real figure of approximately 200 billion euros. He avoids mentioning that the United States achieves a nearly equivalent surplus in services, about 178 billion euros. With China, however, the situation is different: services trade is almost balanced, while goods trade is profoundly unfavorable for Europeans. A single figure captures the gravity of the situation: according to the ECB, 29 million European jobs are directly exposed to Chinese competition, or about 27% of employment in the euro area.
China uses its industry as a lever of power. Its industrial policy, its geopolitical ambitions, and its economic model are aligned and coordinated by the state and the Communist Party, which has pursued for decades a strategy of strategic autonomy, even self-sufficiency. In 2015, Beijing launched its “Made in China 2025” plan: a decade-long program aiming to reach 70% self-sufficiency in strategic industries and to use its domestic market to nurture industrial champions capable of competing on the world stage. China currently accounts for 37% of global manufactured goods and could reach 45% by 2030. While China spent decades limited to low-value-added industries such as textiles, toys, and cheap assembly, that is no longer the case. It now dominates the main strategic value chains of the ecological and digital transition, from raw materials to assembly: batteries, solar panels, critical materials, etc. China produces more than half of the world’s steel, 40% of chemicals, and 80% of photovoltaic panels. It is now entering the playing field of European champions, notably Germany: automotive, machine tools, and chemistry. In the automotive sector, China became in 2023 the world’s top exporter of cars. It now exports more cars to Europe than Europeans export to China. This is a historic reversal for the German automotive industry, which for about twenty years had made the Chinese market a key source of revenue.
China is not an industrial power like the others
In 2001, China joined the World Trade Organization, which granted it access to global markets without the need to renegotiate that access each year. This status provides predictability that stimulates investments and exports exponentially: while China represented only 4% of global exports in 2001, this figure more than tripled in a little over two decades to reach 15% in 2023, making it by far the world’s leading exporter. Some consider that joining the WTO was a mistake given the current situation. It is always difficult to rewrite history, but it seems reasonable to think that this membership accelerated the country’s economic development, without necessarily producing convergence toward the market-driven democracy model of the West that European and American leaders of the time expected.
From the 1980s onward, China used access to its domestic market as a strategic lever by imposing joint ventures on foreign companies seeking entry. It thus forced the transfer of technology and know-how to domestic companies. The aim is not only to enable technological catch-up but, in the long run, to create champions capable of surpassing Western rivals. Most European carmakers established joint ventures between the 1980s and 2000s. At the same time, China produced national champions such as BYD or Geely. In 2010, Geely even bought the Swedish carmaker Volvo. Last year, Chinese manufacturers accounted for 60% of global electric car sales. Their production cost is 30–40% lower than European manufacturers’ thanks to a vertically integrated approach, rapid deployment of innovation, and more advanced automation in newer, more productive plants.
The cost competitiveness of Chinese firms also stems from substantial subsidies, whether through direct state aid or via preferential-rate loans backed by the state-owned banking system. According to the OECD, 60% of the market shares won by Chinese firms over the past 20 years cannot be explained by productivity or innovation, but by public subsidies. Chinese enterprises receive 3 to 8 times more government support relative to their turnover than their European counterparts. They are not bound by any implicit profitability standard. The aim is to conquer market share at any price. A quarter of Chinese firms operating in Europe are currently unprofitable. Among the thirty-odd electric vehicle manufacturers present in China, only three are profitable. Europe cannot compete with the cost of capital in China, because China is not a market economy. The concept of “cost of capital” is largely absent from political debate, though it is at least as important as labor or energy costs. Cost competitiveness also rests on currency devaluation policies. The ECB and the IMF estimate the renminbi to be undervalued by about 15%. China thus uses its currency to artificially create an additional competitive advantage, against which European cost competitiveness gains cannot compete.
As if that were not enough, the trade imbalance between the Union and China also translates into entry barriers for European firms on the Chinese market. Result: exports from the single market to China declined. They fell by 30% in volume between 2017 and 2024, while China grew by 40% in the same period. The Union now exports more to Switzerland than to China, which has become the Union’s fourth export destination. If European manufacturers export less to China, it is also the result of the rising strength of domestic Chinese supply. Twenty years ago, China bought heavily German machine tools and cars. Today, it buys Chinese cars and machine tools. This is a reality: Chinese industrialists have innovated and invested far more than their European counterparts over the past decade. They have gradually closed the gap and are now, in many areas, simply more competitive.
But on top of this reality, to which we are responsible, there are Chinese policies that distort the conditions of competition. Even when European firms outperform, they lose. For instance, China applies “Buy China” clauses in public procurement, thereby favoring its national champions. Since the start of 2026, the price of Chinese products has been artificially reduced by 20% in bid evaluations.
When you aggregate all Chinese policies aimed at ensuring competitiveness beyond cost and cost competitiveness, you measure the mortal danger of the tsunami we are only just facing.
Interdependence, the bedrock of European power, has become a weapon of coercion
While Beijing has meticulously built a planned and coordinated industrial policy over decades, Europe has deliberately chosen free trade as a strategy to maximize gains: European companies have globalized their value chains, optimized costs, and delivered more affordable products to European consumers, while using the Chinese market as a growth channel, as German manufacturers still derive up to 30% of their profits from sales in China. The choice of China has proven beneficial both for consumer prices and for the dividends of large European firms.
The benefits of trading with China are rarely discussed in French debate, because France maintains an almost exclusively negative view of globalization. Indeed, France records one of Europe’s largest deficits for decades. Yet many European countries, starting with Germany, have greatly benefited from this openness. This objective difference is reflected in current European policy debates: the French see it as a natural evolution, while the Germans view it as a rupture, justified by the new reality for some, and a slide toward a trade war for others.
The integration of European value chains with China, built since 2001, has produced structural dependencies that Beijing now uses as economic pressure tools. The Chinese state has gradually imposed export licensing systems for critical metals and technologies. In April 2025, China even imposed restrictions on the export of heavy rare earths and permanent magnets essential to electric motors, the wind industry, and defense equipment.
In 2026, China took a further step by introducing two new decrees: Decree 834 on “Industrial and Supply Chain Safety” and Decree 835 on “Combating the Abusive Extraterritorial Reach of Foreign States.” These regulations extend China’s coercive toolkit and raise a strategic question for Europe. In recent years, we have built a set of rules conditioning access to the single market on compliance with European standards. These rules involve data gathering from suppliers, including non-European ones, to verify product conformity entering the single market. This is the case for the forced labor prohibition regulation, the border carbon adjustment mechanism, the deforestation regulation, and due diligence and non-financial reporting. Yet these new Chinese decrees seriously complicate the task for European firms and the Commission to collect this data, since China reserves the right to block transfers for reasons of industrial security and value chains, without clearly defining the scope, to leave room for discriminatory policies. Decree 835 has already been used in May 2026 to block a Commission investigation into Nuctech under the EU Foreign Subsidies Regulation. This new Chinese policy could prevent European companies active in China from complying with European law, placing them in a complicated legal position. It would also make it much harder for the Commission to conduct investigations that could lead to duties on Chinese products.
This is a dimension less visible than the tariff-based confrontation but just as important: the war of extraterritorial standards. China is attacking Europe head-on as a normative power. This goes beyond the solely industrial competitiveness question, because it targets a key element of our European political sovereignty: deciding what should and should not enter our own market.
The time is no longer just for diagnosis. China’s industrial power already exerts harmful effects on European industry. European software, long based on open trade seen as mutually beneficial, must be rethought. Europe’s power will hinge on two inextricable imperatives: on the one hand, invest to produce and innovate in Europe to reduce our dependency; and on the other, protect ourselves when other countries do not follow the same rules.
Investment and innovation in decarbonization as new drivers of European power
Electrification as a sovereignty strategy
China understood, before Europe, that electrification was not merely an environmental obligation but also a lever for industrial competitiveness and energy sovereignty. Like Europe, China is poor in fossil resources. As the world’s largest crude oil importer, it depends on imports for more than 70% of its oil—a vulnerability highlighted by tensions around the Hormuz Strait. In two decades, electrification has become a strategic priority for China. The share of electricity in its final energy consumption has risen from about 10% at the start of the 2000s to over 30% today. By 2024, China had achieved six years ahead of its 2030 target for wind and solar capacity, while investing $625 billion in clean energy, accounting for about a third of global investments in this sector. In nuclear power, China is also on the verge of surpassing traditional nuclear powers. The country is currently building almost half of the reactors under construction worldwide, with construction times about twice the global average.
We now speak of an electrostate, as opposed to the petrostates that built their power on oil, like the United States. China does not simply deploy decarbonized electricity production at a rapid pace; it organizes its entire electrical system to make it a lever of industrial competitiveness. It is developing a smart, decentralized grid that can convert every consumption point into a potential source of flexibility. Over a billion smart meters have been installed. In October 2024, an interprovincial electricity spot market was launched, enabling real-time price adjustment to align consumption with competitively decarbonized production on a national scale. In Shanghai, with about 25 million residents, the first large-scale test of “vehicle-to-grid” aims to demonstrate the feasibility of using electric vehicles as batteries on wheels capable of supplying services to the power grid.
With electrification, China also intends to exploit the continuum of automation and modernization of its industrial apparatus. At Davos, Chinese Vice-Premier He Lifeng stressed that the green transition is at the core of China’s growth strategy, clearly linking decarbonization to innovation and the development of new technologies. Indeed, electrification creates the techno-economic conditions enabling large-scale deployment of robotics and automation in industrial processes. It thus allows industries—traditionally dependent on fossil-fuel energy systems—to achieve productivity gains. In 2024, 54% of industrial robots were installed in China, according to the International Federation of Robotics. Electrification and industrial modernization thus go hand in hand.
As is well known, the Chinese Communist Party’s ultimate geopolitical objective is to forge a new world order with China at the center, as the United States did in the 20th century and Europe before them. Yet China’s dependence on fossil fuels, with the United States as the world’s leading producer and exporter, makes this impossible. That is why becoming an electrostate is a key element of China’s strategy, because it is the condition for its supremacy.
On the European side, the Commission has just published a new electrification strategy for the continent. The war in the Middle East has again reminded us of the cost of our dependence on imported fossil fuels, as well as the security and economic interest for Europe to move quickly with this transition. This plan aims to electrify nearly half of our economy by 2040, which could yield up to €260 billion in annual savings. Thanks to its already largely decarbonized electricity production, its interconnected grid, and its mature nuclear industry, Europe has the means to join the club of electrostates. It is a win-win strategy for European sovereignty, industrial competitiveness, and security. The challenge for Europeans is to deploy the production of the essential clean technologies for this electrification while building a political consensus around this objective. This is the heart of the choice European heads of state and government must make: do we want Europe to become an electrostate, a condition for its power against fossil-fuel powers such as the United States and Russia? Until this question is resolved, we will severely lack a strategic vision and a clear path.
Produce and innovate in Europe
If Europe today faces a competitiveness deficit, it is partly the result of chronic under-investment by major European firms in their productive capacities, relative to their financial performance. Europe possesses an industrial apparatus built with amortized production tools that yield short-term rents but condemn medium-term competitiveness if not modernized. In contrast, China has built ultra-modern, automated, and optimized factories. In Europe, for every euro of profit made, the share reinvested in new productive capacity has fallen by more than half over twenty-five years, from 18.9% in 2000 to only 7.4% in 2024. Parallel to this, among Europe’s 300 largest non-financial companies, the payout rate to shareholders has risen from 27% to 68% of net profits over the same period. Dividend payments or share buybacks now structurally exceed productive investment.
Pressure from Chinese industry on market shares and prices, combined with the demand for immediate dividend distribution and buybacks to push up stock prices, pushes European leaders to favor the very short term at the expense of investment. Cumulative over twenty-five years, this choice partly explains why Europe today finds itself in a weaker position compared to a China that has bet on the opposite path, without short-term profitability constraints. China’s innovation-financing system enables hundreds of young firms to emerge around a shared technological challenge. Funded both by the central government and the provinces, they then compete with one another. The champions emerging from this competition attract the central government’s close attention, which turns them into global leaders while others disappear.
The Union therefore has no choice but to invest much more than today, starting with fostering European production capacities in strategic sectors. Building a European battery, rare earths, or green chemistry industry is essential to guarantee our competitiveness and our sovereignty in the medium term. If Europe cannot compete with China on price competitiveness, it must focus on innovation and disruptive technologies. Take the battery example. China controls and masters lithium-ion and lithium iron phosphate battery technologies. It produces high-quality batteries at ultra-competitive prices. CATL, the undisputed world leader, even acknowledges today that it is only at level 4 on a 9-point scale of industrial maturity for solid-state battery technology, meaning the competition is still open. This does not mean Europe should abandon the industrial battle for current technologies, because innovation is not built on sand, but on a robust and agile industrial ecosystem capable of bringing it to industrial scale. The ASML example in the Netherlands is instructive: it grew out of Philips, a historic giant whose many lines disappeared, but which managed to foster within itself a new know-how and skills that helped make ASML the world leader in lithography machines essential for semiconductor production. What began as a Philips subsidiary has become one of Europe’s largest and most strategic companies. If Europe continues to deindustrialize, it will lose its ability to be a champion of tomorrow. We are seeing with the battery industry that building skills takes time, longer than expected, and requires even more significant financial efforts than anticipated. But without this new industrial base capable of generating breakthrough innovations, we will have little chance in competing with China.
European industrial sovereignty will also depend on deploying technologies that reduce our dependence on China, particularly regarding critical raw materials. That is why innovation must also focus on substitution. This is the bet of certain European companies, such as Skeleton Technologies in Estonia, which makes cobalt- and graphite-free batteries, or Renault, a pioneer of motors without rare earths. This strategic objective must now be generalized with dedicated financial tools that could be centralized within the European Commission in the new competitiveness fund planned in the European budget from 2028 onward.
It should also be recalled that preserving a European industrial base is not only an issue of economic competitiveness. It is also a matter of sovereignty and geopolitical power. Indeed, there are common foundations between civilian industry and defense industry. The production of batteries, rare earths, or semiconductors is, for example, equally important for defense applications. In case of armed conflict, one must be able to mobilize civilian steel production or alternative fuels to operate military aviation. A cutting-edge defense industry also relies on the synergies, skills, and know‑how of the civilian industry. This civil-military dual-use culture remains too underdeveloped in Europe for historical reasons, although it has been seamlessly integrated by China into its own industrial policy, as well as by the United States, particularly in space and digital domains.
Some remind that the ecological transition itself generates new dependencies on China: batteries for electric cars, rare earths, solar panels, etc. However, these new dependencies should not be placed on the same footing as Europe’s dependence on fossil fuels. In a carbon world where energy control is a weapon, Europe simply does not have the means to compete, because it does not produce, and will never produce, oil or gas. It must accept a power imbalance that is unfavorable and can only manage its risk by diversifying supplies. In the realm of critical raw materials, the situation is not so fixed. China’s dominance is not geological; it is the product of a deliberate industrial policy. Europe has the means to reduce its dependence by investing in extraction, refining, and recycling of these materials. Take lithium as an example. Europe is capable of ensuring European lithium production, because there are lithium geological resources in Europe and because it can, in the long run, recycle lithium from end-of-life electric vehicle batteries, using secondary raw materials produced on site. The current dependence on China is thus less about extraction and more about refining and processing, i.e., industrial capacities rather than geological rents we are powerless to resist.
This investment shock to develop tomorrow’s European industrial value chains can only occur if European firms face fair competition. Yet the conditions for fair competition with China are not in place. The European market is flooded with massively subsidized overcapacities. The solar sector precedent, where the Commission found dumping margins of 88% as early as 2013, killed the European photovoltaic industry. The Commission’s EV investigation led to countervailing duties that can reach up to 35% since 2024. But we must stop thinking case-by-case, often too late, and move to a multisector strategic logic. The political decision remains to be made, and every month of delay is a month of lost progress.
Possible European responses to the new Chinese order
From conditional access to the single market to strategic control of trade flows
With the Green Deal, Europe pursued a clear ambition: to decarbonize while ensuring a fair competitive framework for European industries to prevent climate dumping by rivals. The principle is simple: trading partners must be subject to the same rules as our companies and must meet European standards to access the market. This logic of equal treatment led us to adopt, in 2023, the EU Emissions Trading Adjustment at the Borders, in order to price imported CO2 emissions, as well as traceability and carbon footprint criteria in the batteries regulation. This is Europe’s first way to defend its industrial interests through market access standards, an effective approach since the European Union is one of the world’s largest markets.
In parallel, Europe has also strengthened its toolbox for trade defense, as the traditional anti-dumping and anti-subsidy tools have reached their limits in dealing with the systemic competition distortions imposed by China. These measures, designed in the 1990s, have proven too slow, too targeted, and too reactive, and not sufficiently anticipatory. Investigation procedures can sometimes last up to three years. In European law, anti-dumping duties are governed by the so-called “lesser duty rule,” meaning they respond to dumping not with an equivalent tariff but with a tariff sufficient to offset the real economic damage from the same dumping. For example, under this principle, a European duty of 15% in response to 25% dumping of Chinese steel might be enough to “make good” the damage to the industry and restore a level playing field. The Lesser Duty Rule “repairs” the impact of dumping on the market but does not equalize the terms of the dumping itself. This rule aims to avoid trade wars and prevent situations where our industry would not have the means to produce what we consume. However, it must be noted that in the face of China, where dumping is part of a massive conquest strategy, its deterrent effect leaves something to be desired. Moreover, this is a rule we impose on ourselves: not all WTO members adopt this approach. The United States, for instance, has a much more deterrent policy and aligns, in most cases, its tariffs with the level of dumping of the country concerned.
Moreover, Commission investigations are extremely targeted, product by product, which makes it hard to account for the systemic dimension of distortions that can affect several segments of the same value chain. Over the past five years, Europe has deployed new tools better suited to responding to the instrumentalization of trade flows by China for coercive purposes. In November 2023, the Union adopted an anti-coercion instrument to address coercive practices by third countries. It has also strengthened foreign investment screening by adopting a revised regulation in June 2026. Adopting such instruments is a good thing, but using them is better. This is the core political decision to be made in the autumn of 2026, as Ursula von der Leyen stated: “We will use all tools at our disposal to rebalance our relationship.”
These instruments signal the beginning of a shift in Europe’s software. It is no longer enough to condition market access on partner compliance with European standards. Sometimes it is necessary to restrict or limit trade flows, even when they comply with European rules. This turn is explicitly acknowledged in the European Economic Security Strategy of June 2023 and in the Commission’s December 2025 communication. The latter recognizes for the first time that trade and economic openness can no longer be universally considered positive factors, and that third countries can exploit economic interdependence for strategic and coercive purposes. This is a major conceptual break that deserves recognition, and France has not been immune to it, far from it.
Moreover, there is also an ongoing reflection within European institutions on the need to equip oneself with new, more agile and structural tools, so as not to lag in legitimizing the defense of our industry against objectively unfair competition. If it is necessary to correct certain outdated principles, such as the lesser duty rule, it is especially important to deploy more systematic tools that are better suited to the nature of the trade risks we face with China. This is the purpose of President Emmanuel Macron’s call, at the June 2026 Council, for an “European equivalent of Section 301” that would enable rapid imposition of tariffs after a direct decision by the U.S. president if a foreign government action unreasonably or unjustifiably hinders U.S. commerce. While the use of this Section by the Trump administration is highly controversial and partly arbitrary, it is clear that it provides political agility to shield against the impact of overcapacities we currently face with China, and perhaps tomorrow with India, which cannot be fully addressed by our current trade-defense instruments. We already have, in European law, a first building block resembling Section 301 for overcapacities, with the steel safeguard instrument. The challenge now is to draw inspiration from the American Section 301 to create a safeguard instrument against overcapacities across all sectors. The form of this tool remains debated, but the direction is clear: Europe needs a tool as robust as the challenge posed by China, capable of addressing distortions in a systemic way and agile.
The strengthening of the protection dimension must not serve as an excuse to defend a European industry that is merely profitable and polluting, nor to slow the climate transition. Thanks to mature and competitive green technologies, China is accelerating the global climate transition today, especially in countries that do not have the means or ambition to develop their own green sectors in cars, batteries, or solar panels, for example. For many countries, the Chinese offering provides a solution and a spur to decarbonization. In these markets, Europe can play a role if it can offer its own green solutions at competitive prices. Furthermore, many countries hosting massive Chinese investments are also looking to diversify their partners so as not to become dependent on Beijing. Brazil and Australia are examples. Europe thus has a card to play to create a cooperative space with these countries and become a credible alternative partner. In Europe, a robust protectionist policy must pursue a clear objective: enable, eventually, the production of the same technologies at a cost competitive with China, or produce differently, with higher costs but superior on other criteria: durability, performance, security, etc. Non-cost competitiveness can become an explicit positioning for the Union, allowing it to compete on disruptive innovations, just as China did twenty years ago.
A low-to-strong strategy for Europe
Neither Europe nor China benefits from a trade war. European value chains are highly dependent on China, and Chinese exports rely heavily on the European market, especially since the relative US market closed somewhat. Yet the status quo is not an option, for it would lead to industrial stagnation on the continent. Europe must explore a third path to restore balance in its trade relationship, by identifying and exploiting its strengths to build reciprocity.
China depends on Europe to absorb its industrial overcapacities. The Chinese economy is structurally export-oriented, as domestic demand is insufficient. China accounts for only 13% of global demand for goods. All signs suggest this trend will continue in light of the 15th Five-Year Plan, adopted in March 2026. A third of the country’s growth today relies on exports. To reach its growth target of 4.5–5% for 2026, China will need to continue leaning on exports. Europe is not China’s only trading partner, but it is a preferred partner offering opportunities few other regions can match. The Union is a market of 450 million consumers across 27 countries, governed by a large number of common rules. Take solar panels as an example: demand is driven by a stable regulatory framework, grid infrastructure is in place, and the market is regulated, providing investors with a degree of predictability. No other region in the world offers such a package.
Europe also possesses critical technologies that China envies. This includes the machines enabling the most advanced chip manufacturing, produced by ASML, one of the few companies worldwide with access to this technology. Europe has a cutting-edge ecosystem controlling key AI technologies, such as Trumpf’s lasers and Zeiss’s precision optics, essential for ASML’s machines. Moreover, an export-restriction regime has been in place since 2019. It is a strategic lever for Europe if it wants to preserve its technological lead over China.
With the Industrial Accelerator Act, Europe proposes to use its internal market as a strategic lever to foster the emergence of strategic supply chains. The IAA introduces for the first time European preference in markets and public funding. European public procurement accounts for around 14% of EU GDP, i.e., more than €2 trillion per year. Europe draws on what the United States has been doing for years with the Buy American Act. With the Inflation Reduction Act, the United States has extended this logic further by conditioning public aid on the American origin of certain components. Although the Trump administration cut back much of the funding for clean energy and electric vehicles, restrictions on Chinese components were tightened under the One Big Beautiful Bill Act. The U.S. budget is thus used as a strong incentive to de-risk corporate supply chains. Europe can replicate this logic, provided it is embraced as a power-driven industrial strategy rather than a mere competitiveness policy, because derisking has a cost. That is why it must be applied strategically, acknowledging that it is the price to pay to keep value and technological mastery on European soil. And conversely, we must accept not wanting to “do everything.” Indeed, the pace of the climate transition also depends on access to industrial goods at controlled prices, such as solar panels. After all, even when a solar panel is manufactured in China, its installation and maintenance still create value in Europe. It is therefore necessary to distinguish between technologies. This is not an easy political exercise, but when everything becomes a priority, nothing is.
The IAA also foresees another structural measure by replicating what China has implemented for years. For forty years, European companies seeking access to the Chinese market had to accept Beijing’s terms: mandatory joint ventures, local production, forced transfer of technologies and know-how. This substantially contributed to the country’s industrial catching up. It should be recalled that this catching up later laid the groundwork for a wave of truly “made in China” innovations, which is to its merit, but one should not forget the initial conditions set by the Chinese regime. The situation is now reversed: Chinese players are seeking to set up in Europe. The risk is that these become “screwdriver” factories: components imported from China and assembled in Europe, without transferring skills, without integration into local value chains, without real value added, and sometimes with thousands of Chinese workers, as in Szeged, Hungary, where BYD’s new factory mobilized thousands of Chinese workers. These off-shore Chinese plants add nothing to European industrial sovereignty. If the IAA is to effectively protect our industries, the definition of “Made in Europe” proposed by the Commission in March must be revised. By including up to 80 trading partners in this definition, the Commission created a loophole that China could exploit. For example, Morocco could become China’s back-base industrial base, exporting products at ultra-competitive prices to Europe under the “Made in Europe” label. Investing in Morocco would give Chinese firms the best of both worlds: far lower costs than in Europe and unlimited, duty-free access to the single market. China has understood this well, having offered Morocco a free-trade agreement. Instead of the Commission’s proposal to label “Made in Europe” as production conducted in 80 countries, thereby deeming a product “Made in Europe” if produced in Vietnam or Turkey, Europe should prefer a concentric-circle approach: a first circle limited to EU and European Economic Area members, a second circle with total reciprocity with a few cost-competitive countries such as the United Kingdom, Canada, Japan, and South Korea, and finally a case-by-case opening based on our interests and value chain stakes. Concretely, this would mean labeling “Made in Europe” only for what is truly produced in Europe, and giving equivalent treatment to products manufactured in Europe’s allied countries within the circle of total reciprocity. Subsequently, other countries seeking the “Made in Europe” equivalence would have to negotiate it in exchange for real guarantees.
The Union’s objective is not to close itself. The IAA provides the opportunity to build coalitions with partners affected by the same industrial shock and sharing similar interests. Countries such as Japan, Canada, or South Korea could be allies who strengthen our position in negotiations with Beijing. The IAA would thus give operational content to the alliance of middle powers that Mark Carney, Canada’s prime minister, has called for since his Davos 2026 speech. This alliance materialized with his presence during the State of the Union address to the European Parliament in mid-September, as well as with Ursula von der Leyen’s proposal to make Canada the Union’s first associated member. The proposal was accepted by the Canadian prime minister, and we will now work on it. It is a historic decision showing that, in the face of geopolitical tensions, Europe is capable of building the alliance of democracies. It has a major role to play in the geopolitical reconfiguration of the world’s geo-economics. It will require the creation of a cooperation space based on updated rules and real reciprocity, which the WTO is no longer able to offer. Indeed, WTO rules were founded on a premise that no longer holds: that free trade benefits all due to the comparative advantages of nations. That premise is no longer valid today, because a single country, China, concentrates the manufacturing capacities of key industrial sectors. Secondly, the WTO only works if everyone respects its rules. If a player such as China no longer respects them, the entire organization stops functioning. One might think it would be sufficient to exclude China from the WTO. But today there is no mechanism to exclude a country. In this context, would the creation of an alternative WTO with allied countries sharing a similar interest be a better solution?
Playing the European card
This third path, between a trade war and the status quo, requires a political prerequisite: European unity. The good news is that national positions are evolving. Germany, long noted for opposing a tougher policy toward China, is beginning to shift. Germany’s economy has been heavily hit by the industrial shock affecting its traditional sectors, such as automotive, machine tools, and chemistry. Germany’s deficit with China reached €89.3 billion in 2025, up 33.5% from €66.9 billion in 2024. Germany, which blocked tariffs on electric vehicles in 2024, is now open to discussions, alongside France, on how to respond to China’s aggressive industrial policy. As for Spain, it remains in an ambiguous position due to a quadrupling of Chinese investments on its soil, from €149 million in 2024 to €643 million in 2025. Madrid touts the benefits of its clean and competitive energy, as well as its low labor costs, to position itself as a hub of green technologies. Result: Chery opened its first plant on the continent there, and CATL is building with Stellantis one of Europe’s largest battery gigafactories in Zaragoza. To reach a collective response, it will likely be necessary to manage the asymmetry of the impact of a trade escalation on member states. This is the aim of the Commission’s proposal to create a European Solidarity Fund among the states to partly pool gains and losses from a more offensive strategy. Yet we know this pooling is one of the Council’s most sensitive topics, where each government tends to defend its short-term national interests. Parliament’s role will be to defend the European general interest, but that implies a pro-European majority today undermined by the rise of nationalist parties and their increasingly frequent alliance with the traditional right of the PPE. Without European political unity, it is clear that China will exploit our divisions.
But the greatest challenge is not necessarily what one might think. What prevents today an ambitious European response is the deep misalignment among European enterprises themselves. This is perhaps the least appreciated problem in the security debate and perhaps the most difficult to solve. Many large firms do not want a tougher regime toward China, either for fear of retaliation on supply chains largely located in China or because they pursue a strategy of investing in China to then produce for the whole world, including Europe. For instance, BASF’s most significant recent investment is not in Europe but in China. In March 2026, BASF inaugurated a brand-new production site requiring nearly €9 billion in investment. It is simply the group’s largest investment ever. Part of China’s exports to Europe come from European companies operating in China, but there is currently no reliable data to quantify this phenomenon. It is clear that some groups intend in the medium term to close their aging European industrial base and then export from China to Europe. And since these giants have direct access to governments, they form a lobbying force that blocks a more restrictive trade policy. Moreover, every sector demands protection, but resists extending that protection to its suppliers or customers for fear of higher costs. The steel sector clamors for maximum protection, which would raise car prices, something European automakers—already in fierce competition with Chinese rivals—refuse to accept. Taken individually, every corporate decision is perfectly rational, but together they obstruct the European consensus needed on our economic-security doctrine.
It is therefore essential to establish a form of coordination and alignment between public authorities and European companies to play as a team. China does not have this problem, since private companies operate under the guidance of the PCC. Aligning private interests with Beijing’s strategic objectives is notably achieved through the presence of PCC cells within large private firms. In the United States, mechanisms are being debated to ensure that new AI leaders meet major national strategic goals. It is in this context that Sam Altman proposed ceding 5% of OpenAI’s capital to the U.S. state, within a broader initiative where AI giants would fund a sovereign wealth fund to redistribute AI benefits to citizens. This debate is currently non-existent in Europe, though it is absolutely central.
The European response to China’s industrial power is not only an industrial challenge but also a political test. If member states divide and businesses act against European interests, Europe will give China exactly what it seeks. The greatest challenge is not to build the right instruments but to have the vision and the collective political will needed to achieve them. The question now is whether we are ready to undertake a collective choice that will strengthen us as Europeans, even though it will inevitably bring asymmetric national consequences. But without this collective response, Europe risks a future that loses on all fronts: for member states, for European industry, and for European sovereignty. And thus for our democracy and for our freedoms. We have demonstrated in the past that we can rise to such a political test. When we created the single market, when we created the euro, or when we launched the post-COVID recovery plan. Each time the leap seemed impossible, and yet Europe did it. And in doing so, we wrote our future.